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First half a good starting point, but recent cat activity to pressure CRs: Moody’s

13th September 2021 - Author: Luke Gallin

Aided by reduced impacts from the COVID-19 pandemic on the property and casualty (P&C) side of the business, reinsurers’ normalised and reported combined ratios (CR) trended down in the first half of the year, but additional pressure is expected amid an active catastrophe experience so far in H2, according to Moody’s.

Moody'sAs part of the 2021 virtually held Rendez-Vous de Septembre conference, ratings agency Moody’s held a panel debate on the reinsurance market following its recent revision of the sector’s outlook from negative to stable.

During the discussion, Moody’s analysts highlighted the strong performance of the reinsurance industry during the first half of the year.

“Looking at P&C and underwriting performance there, it’s a very good starting point for the first half of the year,” said Christian Badorff, Vice President, EMEA Insurance Ratings. “The good news is that normalized combined ratios have been decreasing. More so, we have seen that reported combined ratios have come down quite a bit, and that’s despite the fact that in the first half we had seen above-average nat cat activity.”

The impacts of heavy catastrophe loss years, which accelerated in 2017 with the trio of Atlantic hurricanes, and the substantial life and non-life losses endured by reinsurers from the ongoing coronavirus pandemic, made sub-100% combined ratios difficult to come by for reinsurers.

While the start of 2021 was by no means benign, as winter storm Uri and the related Texas freeze drove insured losses in the tens of billions of dollars, the reduction of pandemic-related claims on the P&C side, and also price increases, have driven improvements in underwriting profitability for many companies.

But despite the sector being in a better position than last year, just two months into the second half of the year and insurers and reinsurers have been hit by severe flooding in parts of Europe and hurricane Ida in the U.S., which have both resulted in sizeable claims.

“The floods in Germany and other parts of Europe are certainly going to pan out with claims, with total insured claims of up to 10 billion or something like that. And we have seen Ida, not only in the Gulf region, but also in the northeast. And again, we are just two months into the second half of the year, the hurricane season is far from over. So, we should expect some additional pressure on reported combined ratios in P&C certainly,” said Badorff.

Market sentiment suggests that both the European flooding and hurricane Ida will support additional rate increases at the upcoming reinsurance renewals. But with capital plentiful, these events alone aren’t expected to drive a capital event for the industry, more a dent to earnings.

Considering the Atlantic hurricane season is ongoing, the wildfire season has yet to peak, plus the potential for other events, it will be interesting to see where combined ratios trend at the full-year following positive, albeit decelerating rate momentum at the mid-year renewals.

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